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#MondayBlues : Zimbabwe To Introduce Gold Coins, But Can They Be Trusted?

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The Reserve  Bank Of Zimbabwe RBZ has announced that it will soon be introducing gold coins, a move which is brilliant on paper to curb inflation and preserve value, as the value of gold has always been the actual price of any genuinely printed money.

If implemented by honest and prudent administrators, this has the potential to cut down inflation to a single digital and stabilize the economy,  backed by internal production and recapitalisation, Zimbabwe can actually fly its flag higher again because we actually  do have the real gold, but  very  little in reserves.

By Toneo T Toneo

However  this brilliant  move on  paper  has serious issues  that  may force it never to fly, as Zimbabweans still remember the travelers cheque, the lies that the bond notes  had a $200 million backing  value and the bearer cheques fall from grace that  came after  incentives meant only for farmers, before forcing them on citizens.

 

These are serious trust  issues that makes  or breaks any currency, and for anyone to trust the same system that has survived by introducing terminology  for money for its own survival  must be suffering from dementia.

According to the  RBZ statement the gold coins that will be minted at the Fidelity Gold Refineries, will be available through normal banking channels, meaning one can easily get gold coins for in exchange of his bank balance.

This is a master stroke  that can stop  inflation and destroy speculation as most Zimbabweans have  lost confidence in the local currency, rushing to convert it to the USD the moment they receive it.

The biggest challenge is that the  RBZ has  destroyed the banking sector  and  its  values, hence Zimbabweans are now storing value in the USD currency as savings have been destroyed  while the monetary policy as well does not encourage anyone to do so.

In a country where interests  on savings  is 40% and  lending  rates announced today are now at 200%,  yet  any amount will still be subject to bank  charges,  transaction  charges,  2% charge, VAT, amongst others  any banking saving is  automatically eroded, hence  the formal  savings  is  no longer  an option for anyone to store value in currency.

No bank is Buying the RTGS

This situation has forced many Zimbabweans to offload the RTGS  currency at the earliest they receive it as it is just local currency  that one can not even use outside the jurisdiction and when  fortunate,  one may get it changed  at the official bank rate, a preserve  for few sectors.

The RBZ has however come up with a masterstroke,  the gold coins can be a huge  game changer  but  they pose more problems around trust issues and transparency, which may make or break the economy.

The government and   all  banking systems are  ready to buy USD from the market  at a clear  rate yet no bank in Zimbabwe is  ready to buy  the RTGS  currency for USD, which is much more telling about the currency.

The same challenge  will likely visit the gold coins as  the government has only announced the gold coins option, with speculation rife that it will not be accepting  its own RTGS currency  to  buy the same gold  coins, but rather looking only  into the USD currency.

This  speculation alone is  bad  but not far from the truth, as we have already seen the same treatment to the RTGS ,  being restricted to local transactions yet no  open system to easily convert them into foreign currency.

Are the  Gold Coins Fungible?

The second big problem is in the actual “gold Coins” themselves. Are these  really gold coins, easily convertible  to hard cash and  ready to ay the bearer  on demand? Currency must  be fungible, if  not, it has failed  the test of good  currency.

The answer is likely Noo. Fidelity printers can not be trusted with such a responsibility because they simply do not have that proven track report and capacity of honesty and integrity not to print money and destroy the  value of currency.

It is not easy to trust the reserve bank that  it will likely float fake ” gold coins” that they can bake and flood  the market at the exchange of hard currency.  to make sure they can easily  guarantee these gold coins the central bank must be unequivocally  clear and  create structures that makes redeeming of  the  coins  easier.

Do we have  enough gold? 

While all this  is based on  a mineral, a natural resource that Zimbabwe  has  got,  and can easily use, the problem will point to one issue, why are we not simply having  a strong currency  backed by the same gold.

Botswana  backs its currency  on the diamond  reserves, South Africa on its production and yes we can also back our ours on natural resources, which  is is what any government must be doing anyway.

Unfortunately our system has allowed typical cases  like Henriatta  Rushwaya to walk scot free after allegedly picking up wrong hand bag to  Dubai  in an  attempt to  smuggle six gold bars worth around $366,000.

This was just but one of the few publicized  cases where  most influential politicians  in Zimbabwe  are  suspected to  be  looting minerals at the  expense of the  country.

In Zimbabwe  Gold production fell 30% year-on-year to 3.98 tonnes in the first quarter of 2021, with earnings declining $26m to $200m.Overall, the country’s gold output fell by nearly a third in 2020 to 19 tonnes.

Gold reserves and production  are  dipping, we are not increasing  any much  yet  Zimbabwe is reported to have  been sitting 13 million  tonnes while the central bank chief revealed that the country has potential to earn over $4 billion per annum from gold exports if it fully exploits the reserves

Gold production once reached a 27.1 tonne peak in 1999, but later tumbled to a low of approximately 3.5 tonnes at the height of Zimbabwe’s economic crisis in 2008 and  mass looting.

Zimbabwe is reported   to be the second largest gold reserves per square kilometre in the whole world with 13 million tonnes of proven reserves of which only 580 tonnes have been exploited since 1980, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya  was  quoted.

How  do these gold coins work in  other countries.

 

A  gold  coin is a coin that is made mostly or entirely of gold. Gold coins are not a new phenomenon, they have  been in circulation in other countries for a long time now. Most gold coins minted since 1800 are 90–92% gold (22 karat),

In these countries they have  their gold coins the BritanniaCanadian Maple Leaf, and American Buffalo. Alloyed gold coins, like the American Gold Eagle and South African Krugerrand, the Isle of Man Gold Cat, the Australian Kangaroo, The Ying yuan is an early gold coin minted in ancient China and the China Mint Panda Bear.

Gold Coins are typically 91.7% gold by weight, with the remainder being silver and copper.

We do not know what weight our Zimbabwean coins will carry and how much value  they will actually carry or gold  backing they will have  before they become another bearer cheque.

Zimbabwe’s inflation increased to 191,6 percent and 30,7 percent on a year-on-year and month-on-month basis for June 2022 although independent analysts and experts like Steve Hanke estimate it to be 377%.

There is need to arrest this run away inflation, where discipline and trust must lead the process and honesty in how the gold coins would be manufactured and  sold to return confidence.

If clearly and properly done, the coins will bring relief and  streak of hope  to millions of Zimbabweans who have struggled to save their hard earned  investment and lost their life time savings and pensions.

@admin_techno

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